Strategy & Operations » CFOs must play a key role in managing investor relations

CFOs must play a key role in managing investor relations

Communicating effectively with investors on issues ranging from the pandemic to ESG is now vital to success

Whereas the CFO’s role was once defined by finance and accounting, today’s finance leaders are expected to work alongside CEOs on critical projects and deal with multiple external factors, including growing investor scrutiny and concerns.

According to recent research from leadership consultancy Spencer Stuart, major economic disruption will be the norm in the foreseeable future and, in this new environment, the CFO will be key to balancing the short and long-term needs of stakeholders.

Changes, which were already underway within the finance function to meet these new requirements, will have to speed up in the wake of pandemic, the report warns.

Tom Kolaja, partner at McKinsey, points out that the pandemic has emphasised the need for CFOs to step in and give investors a clear account of operations and financials. This includes updating investors on their company’s liquidity position and its ability to withstand a downturn, as well as measures being taken to safeguard employees, vendors and suppliers.

“In times of crisis, it is upon CFOs and executive teams to show leadership and to be transparent with investors about all bad news and potential risks,” he says.

“It is critical to communicate quickly about tough decisions – for instance, cost reductions or facility closures – to ensure that investors, employees, and customers see leaders taking clear, resolute action to right the ship.”

Marcus Karia, CFO at YFM Equity Partners, echoes similar sentiments, noting the ability to deal with an adverse situation will depend on the relationship a CFO has with the company’s investors.

“In the worst times, when an event is causing concern, it calls for regular, open dialogue,” he says.

“From an integrity perspective, the CFO can bring additional robustness to the situation to reassure investors. CFOs need to be able to confidently communicate the financial side of the business, and also how this feeds into the big picture and impacts the business strategy.”

Developing the CFO role

The CFO’s role has developed over the past 15 years, says Karia, and today both the CEO and COO have an increased joint responsibility in communicating effectively with investors on a range of issues including financials and crisis events.

“It is the case that the roles of the CFO and COO have become blurred. Often broader roles in the business, including investor relations, can fall into this space,” he says.

“In a larger, public company investor outreach from the CFO will typically be in conjunction with an investor relations director, who is likely to own the day-to-day relationship with shareholders. However, in a smaller enterprise, the CFO is often the first point of contact for investors.”

To do this successfully, the CFO must adopt more of an investor mind-set in their communications.

“A CFO has a number of different stakeholders, both internal and external, and flexing your communication style is a core skill of being able to interact effectively,” says Karia. “Dealing with investors is a key part of this, and it is essential to tailor output to the audience in question. It is really important to put yourself in the shoes of an investor and understand their motivations and objectives.

“That ultimately comes down to maintaining an ongoing dialogue with investors.  The greater the amount of contact you have with the company’s investors and the more that you talk to them directly, the greater the likelihood that you will deliver quality output to that specific audience.”

This type of approach can help CFOs in communicating specific financial events to investors, such as year-end results, as well as alleviate investor concerns, he says.

“Situations where the business needs to communicate anything with a financial impact to investors is where a CFO can really add value. They are closest to the numbers and typically represent a trusted voice and can therefore add integrity to the message.”

ESG scrutiny

The research from Spencer Stuart suggests that investors are increasingly placing companies, and their CFOs, under much deeper scrutiny on Environmental, Social and Governance (ESG) issues.

More investors are taking an intense interest in how companies are dealing with the medium- to long-term risks posed by climate change throughout the value chain, according to the report.

In fact, in the last two years, the proportion of investors asking companies ESG questions has risen from 10 percent to 80 percent.

“Today’s CFOs did not grow up dealing with the ramifications of ESG and for many ‘stakeholder capitalism’ is a foreign concept,” says Spencer Stuart. “However, for the next generation of finance leaders, these will be defining issues that require time, energy and resources.”

 

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